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MassRoots Gets PPP Loan Despite Federal Ban on Cannabis

MassRoots Gets PPP Loan Despite Federal Ban on Cannabis
iStock.com/sb-borg

Marijuana businesses have been prohibited from receiving federal financial aid for the coronavirus pandemic, and so have businesses that provide products and services to the pot industry.

So how did a marijuana social media and technology company with website categories such as "strains," "dispensaries" and "WeedPass" receive a $50,000 loan under the Coronavirus Aid, Relief, and Economic Security (CARES) Act's Paycheck Protection Program?

According to MassRoots CEO Isaac Dietrich, it's all in the fine print.

Per a Small Business Administration notice, any business deriving gross revenues from federally illegal sources was prohibited from the PPP program, as were any businesses that "make, sell, service, or distribute products or services used in connection with illegal activity."

“Because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity,” the SBA notice states.  “Therefore, businesses that derive revenue from marijuana-related activities or that support the end-use of marijuana may be ineligible for SBA financial assistance.”

But Deitrich says that it all depends on how much of that revenue comes directly from those marijuana businesses and activities. According to the CEO, 97 percent of MassRoots revenue comes from non-marijuana efforts, such as Amazon referrals. And he's so confident in the loophole he located that he announced the MassRoots PPP acceptance earlier this month — even though he ruffled some feathers in the marijuana industry as he did so.

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"I started getting bashed from people inside and outside the industry after we announced it. I have no doubt that our announcement drew attention, and that's going to be scrutinized," he says. "Some companies may feel like they've gotten away with something, and they want to discourage me from talking about this. But I honestly feel like this could help some cannabis-related businesses obtain tens of millions in capital on great terms. ... I stand behind everything we did."

Although the impact of COVID-19 on the marijuana industry's bottom line hasn't been fully measured yet, marijuana media firms were already feeling the squeeze before the economic downturn. The $50,000 PPP loan represents a relatively small slice of funding, Dietrich says, noting that it will all be used to compensate employees, and that the loan helped MassRoots avoid layoffs.

The PPP loan is a small win after a tough stretch for MassRoots. The website appeared to be dead after going dark for several weeks at the end of last year, and that was preceded by an investor lawsuit, executive upheaval (Dietrich was removed and then reinstated as CEO over the span of a few months in 2017) and reports of overdue rent. In 2018, the company moved its headquarters from Denver to Los Angeles.

But the website is back up, and Dietrich has been able to hold on. "I think the rest of 2020 is looking bright," he predicts.

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